BullBearMS:Apple can and does pay for the factories it's manufacturing partners run to build the components Apple wants.

For instance, this is from the last fiscal year's financial report: The Company's capital expenditures were $10.3 billion during 2012, consisting of $865 million for retail store facilities and $9.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructure.

I'm not completely sure, but isn't tooling and mfg process equipment part of the cost in setting up ANY [overseas] manufacturing? Even if they own the facility, that's not saying that Apple's running the line, just that a facility of their own is cheaper than line-time at normal rates. Manufacturing on that scale's got to be a fairly specialized skill. Regardless of how much money they have on hand, they're not going to just plop down some cash and match Samsung's fab capabilities.

Hmm, I do wonder what will happen to Samsung's US-based fabs when they lose the volume though.

fluffy2097:Carth: Except the fact Samsung is a publicly traded company and that would piss off their share holders. And the fact Apple has enough cash on hand to buy Samsung. Pissing off a company with 120 billion cash on hand is usually a bad idea.

Buying a company that does something completely different from anything your company does is a terrible idea, even if they had the money to do it (and no, Apple doesn't have the cash.)

Do you think it would be wise for Dominos pizza to Buy out the company that makes their ovens and go into the oven making business just because they had a personal vendetta against their oven supplier? What does a pizza company know about making ovens?

I don't think Apple WOULD buy Samsung, but having $120 billion (or whatever Apple's actual cash holdings are) in the bank means they have some maneuvering room. They could explain any supplier difficulties by saying "The development of the A8x chip (or whatever it would be) is not ready, so we're going to delay the iPhone 7S six months" and maybe lose a little shareholder value while new fab lines get up to speed.

ProfessorOhki:Hmm, I do wonder what will happen to Samsung's US-based fabs when they lose the volume though.

One of the things Google likes to tout is that the Nexus 7 is it was built here in the US. They may want to contract something with them, even if only to use their facilities, to keep that selling point up.

Not surprised considering for the short term Apple is locked into using Samsung's chips. This, and the Nexus 10 was created in partnership with Samsung and is the first tablet with an A15 processor so it looks like Samsung is growing their processor business.

RoxtarRyan:BullBearMS: I would expect that by the time Apple's current manufacturing contracts with Samsung are up, they will have other facilities ready to go.

Sounds like they prepared for the fallout...

RoxtarRyan:BullBearMS: I would expect that by the time Apple's current manufacturing contracts with Samsung are up, they will have other facilities ready to go.

Sounds like they prepared for the fallout...

I believe that the move to TSMC started as the normal sort of "we need a second source for manufacturing this component" sort of deal, but once Samsung decided to start screwing over it's biggest customer, all bets were off.

I understand that both Apple and Qualcomm tried to completely book all TSMC's manufacturing capacity earlier in the year and were rebuffed. I'm afraid Apple is just going to have to front TSMC the money to build an Apple dedicated Fab and wait for it to be built before they get the amount of capacity they want.

Meanwhile, Intel also mentioned their willingness to fab chips of other people's design earlier in the year, which makes sense when you consider how little Intel wants other semiconductor manufacturers to have enough cash to catch up to Intel's manufacturing process advantage.

ProfessorOhki:BullBearMS: Apple can and does pay for the factories it's manufacturing partners run to build the components Apple wants.

For instance, this is from the last fiscal year's financial report: The Company's capital expenditures were $10.3 billion during 2012, consisting of $865 million for retail store facilities and $9.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructure.

I'm not completely sure, but isn't tooling and mfg process equipment part of the cost in setting up ANY [overseas] manufacturing? Even if they own the facility, that's not saying that Apple's running the line, just that a facility of their own is cheaper than line-time at normal rates. Manufacturing on that scale's got to be a fairly specialized skill. Regardless of how much money they have on hand, they're not going to just plop down some cash and match Samsung's fab capabilities.

Hmm, I do wonder what will happen to Samsung's US-based fabs when they lose the volume though.

Yes, it would take a while to build and qualify a semiconductor fab. I suppose Apple could just buy one, but I don't know if it's in their best interests.

It's been a while since I was up to speed with the semiconductor fab business, but "fabless" semiconductor companies were starting to be popular when I was getting out of it in the late 90's. Fabs themselves are highly specialized facilities, so companies like TSMC provide the equipment and manufacturing expertise while "fabless semiconductor companies" provide the IP and buy time and capacity from the fabs. IIRC, Intel is big enough that they can support both fabs and IP, but more companies are going to a split model and falling on one side or the other.

Mitch Taylor's Bro:I don't think Apple WOULD buy Samsung, but having $120 billion (or whatever Apple's actual cash holdings are) in the bank means they have some maneuvering room. They could explain any supplier difficulties by saying "The development of the A8x chip (or whatever it would be) is not ready, so we're going to delay the iPhone 7S six months" and maybe lose a little shareholder value while new fab lines get up to speed., but partner it with an aggressive marketing campaign stressing "iPhone 7S, it's worth the wait" and featuring news coverage of that one guy who that's been waiting in line 6 months. The main talking point wouldn't be how they farked their supply chain but how, "Apple won't release a product until they're really confident in it... because they care about quality and the consumer." Record first-week sales and profits.

BullBearMS:Mercutio74: Also, let's face it, people expect to pay a gazillion dollars for an apple device.

Actually, Microsoft's profit margin for Surface is much higher than Apple's profit margin on iDevices.

Microsoft (NAS: MSFT) will apparently be sitting pretty if its new tablet is a hit. The crafty deconstructionists at IHS iSuppli took apart the Microsoft Surface to value each of its components, and the results are surprising. Just $284 in components and manufacturing costs go into making the $599 tablet with its attachable keyboard cover.

By IHS iSuppli's math, that makes the Surface more profitable -- with a 53% profit margin -- than Apple's (NAS: AAPL) industry-leading iPad.

For what it's worth, I don't see why anyone would buy Microsoft hardware (except for possibly an XBox 360) either.

Carth:RoxtarRyan: fluffy2097: They make the processors and chipsets. The very heart of iOS devices. I believe they used to make apples displays as well. (but don't quote me on that)

I believe they do, yes. So, technically, doesn't Samsung have a bit of say in that whole "Retina Display" thing as well?

Christ... they can cripple Apple if they pull their tech out and say "fark off". It'll financially hurt Samsung in the short run, absolutely, but they could very well end the entire Apple mobile product line in one fell swoop.

Except the fact Samsung is a publicly traded company and that would piss off their share holders. And the fact Apple has enough cash on hand to buy Samsung. Pissing off a company with 120 billion cash on hand is usually a bad idea.

Don't be ridiculous. Apple can't take over Samsung. It would be by far the largest hostile takeover ever. The Koreans would never allow it and Apple's investors would think that the management has gone nuts.

ProfessorOhki:BullBearMS: Apple can and does pay for the factories it's manufacturing partners run to build the components Apple wants.

For instance, this is from the last fiscal year's financial report: The Company's capital expenditures were $10.3 billion during 2012, consisting of $865 million for retail store facilities and $9.5 billion for other capital expenditures, including product tooling and manufacturing process equipment, and other corporate facilities and infrastructure.

I'm not completely sure, but isn't tooling and mfg process equipment part of the cost in setting up ANY [overseas] manufacturing? Even if they own the facility, that's not saying that Apple's running the line, just that a facility of their own is cheaper than line-time at normal rates. Manufacturing on that scale's got to be a fairly specialized skill. Regardless of how much money they have on hand, they're not going to just plop down some cash and match Samsung's fab capabilities.

Hmm, I do wonder what will happen to Samsung's US-based fabs when they lose the volume though.

I'm not aware of any company except Apple that pays in advance to build the factories it's manufacturing partners then run. Normally, the component manufacturer pays for their own factory and charges a higher rate for the components they build to make up for it.

As far as manufacturing chips goes, TSMC's process is more advanced than Samsung's, so Apple is trading up here.

BullBearMS:I'm not aware of any company except Apple that pays in advance to build the factories it's manufacturing partners then run. Normally, the component manufacturer pays for their own factory and charges a higher rate for the components they build to make up for it.

Er, I wasn't saying that paying to build a factory was normal. I was saying that paying for things like tooling was. I can't think of anyone else with that volume of custom chips, so I don't really have anyone to compare them to in that aspect.

Samsung by virtue of making actual finished products on their own, isn't particularly worried if someone goes elsewhere for some parts. They have the means to come up with their own stuff to sell, so it's not like having more chips on hand all of a sudden is a problem. Plus plenty of other people they sell to besides Apple.

WhyteRaven74:Samsung by virtue of making actual finished products on their own, isn't particularly worried if someone goes elsewhere for some parts. They have the means to come up with their own stuff to sell, so it's not like having more chips on hand all of a sudden is a problem. Plus plenty of other people they sell to besides Apple.

ProfessorOhki:Mitch Taylor's Bro: I don't think Apple WOULD buy Samsung, but having $120 billion (or whatever Apple's actual cash holdings are) in the bank means they have some maneuvering room. They could explain any supplier difficulties by saying "The development of the A8x chip (or whatever it would be) is not ready, so we're going to delay the iPhone 7S six months" and maybe lose a little shareholder value while new fab lines get up to speed., but partner it with an aggressive marketing campaign stressing "iPhone 7S, it's worth the wait" and featuring news coverage of that one guy who that's been waiting in line 6 months. The main talking point wouldn't be how they farked their supply chain but how, "Apple won't release a product until they're really confident in it... because they care about quality and the consumer." Record first-week sales and profits.

FTFA

IIRC, Lexus had a similar crisis/opportunity. They issued a recall really close to their launch. It probably cost them a pretty penny, but lent credibility to the tagline, "The relentless pursuit of perfection." They seemed to do okay afterward, so it wouldn't be the worst approach to take given the circumstances. And as a holder of an insignificant number of Apple shares, I would be okay with this kind of spin :-)

BullBearMS:No business in their right mind wants to lose their largest customer.

True, but when you sell a product directly that outsells your largest competitor... Maybe Samsung has some card up their sleeve, because both parties (Apple, Samsung) both must've seen this coming a mile away.

It says they're looking into other manufacturers, but those vendors ought to be looking at Samsung and thinking to themselves, "Well it looks like Apple is willing to pay 20% more, maybe we should up our asking price..."

"Although Apple has excluded Samsung from key projects, we're not too worried as Samsung is selling more custom chips to other major companies such as Qualcomm and Nvidia," said the [unnamed] official.

Now, whether that's truth or bravado...only Samsung knows for sure. Also unknown is whether or not they're making as much money from Nvidia and Qualcomm sales as they did from Apple.

AverageAmericanGuy:If Apple has their own ARM designs, why wouldn't they just work with some other fab to print these things?

They are. From the same Korean Times article I linked to above:

"A report from Barclays claimed TSMC will start producing Apple's A7 processors from the first quarter of 2014 and stressed hundreds of TSMC researchers and chip developers are currently set to produce processors that are free from Samsung patents."

TSMC = Taiwan Semiconductor Manufacturing Company. All they do is make chips for other companies.

fluffy2097:Buying a company that does something completely different from anything your company does is a terrible idea, even if they had the money to do it (and no, Apple doesn't have the cash.)

The only logical purchase for apple would be if Samsung were to spin off various manufacturing divisions and focus on the consumer electronics end of things only, instead of manufacturing parts for other companies.

And that won't happen.

Now, I could see various other companies broadening their horizons, but I think Apple is "too cool" for that.

I'd say Samsung is in a unique position to expand other parts of their company if they do things right. Hell, how much would it take to start manufacturing a greater number of phones, tablets, and the like at various price ranges? In effect, not only directly compete with Apple products, but undercut them in price as well.

I mean, Steve Jobs is gone. Is Apple going to be able to expand into new horizons in the next 10 years as they have since the iPod? Or are they going to become what Sony became to portable music once a new standard was set for the industry?

Mitch Taylor's Bro:"Although Apple has excluded Samsung from key projects, we're not too worried as Samsung is selling more custom chips to other major companies such as Qualcomm and Nvidia," said the [unnamed] official.

As I mentioned earlier. Qualcomm and Apple both tried to book the entire output from TSMC all for themselves this year and were both rebuffed.

If Samsung thinks Qualcomm wants to do business with them, Qualcomms recent actions show that they are sadly mistaken.

TSMC's manufacturing process is simply much more advanced than Samsung's. Samsung just now moved to a 28nm process while TSMC is ramping up at 20nm. By way of comparison, Intel is at 22nm now and is moving to 14nm next.

BullBearMS:TSMC's manufacturing process is simply much more advanced than Samsung's. Samsung just now moved to a 28nm process while TSMC is ramping up at 20nm. By way of comparison, Intel is at 22nm now and is moving to 14nm next.

Except Samsung announced back in June they're spending $1.8B to produce their own 20nm and 14nm chipsets by 2013.

RoxtarRyan:BullBearMS: TSMC's manufacturing process is simply much more advanced than Samsung's. Samsung just now moved to a 28nm process while TSMC is ramping up at 20nm. By way of comparison, Intel is at 22nm now and is moving to 14nm next.

Except Samsung announced back in June they're spending $1.8B to produce their own 20nm and 14nm chipsets by 2013.

And more recently announced that without volume customers that move didn't make sense anymore.

BullBearMS:RoxtarRyan: BullBearMS: TSMC's manufacturing process is simply much more advanced than Samsung's. Samsung just now moved to a 28nm process while TSMC is ramping up at 20nm. By way of comparison, Intel is at 22nm now and is moving to 14nm next.

Except Samsung announced back in June they're spending $1.8B to produce their own 20nm and 14nm chipsets by 2013.

And more recently announced that without volume customers that move didn't make sense anymore.

Really? Doing a quick search, they just announced 10 days ago they have their 20nm chips just about ready to go for flash memory usage, and another press release 4 days ago saying their 20nm chips are ready to go on SSD and DDR3 units.

RoxtarRyan:Really? Doing a quick search, they just announced 10 days ago they have their 20nm chips just about ready to go for flash memory usage, and another press release 4 days ago saying their 20nm chips are ready to go on SSD and DDR3 units.

You do know that building memory and building CPU's are two different things that happen in two different plants, don't you?

BullBearMS:RoxtarRyan: Really? Doing a quick search, they just announced 10 days ago they have their 20nm chips just about ready to go for flash memory usage, and another press release 4 days ago saying their 20nm chips are ready to go on SSD and DDR3 units.

You do know that building memory and building CPU's are two different things that happen in two different plants, don't you?

Well then, I still haven't seen anything about them canceling their Exynos chip production plant. If anything else, Google is using Samsung in their Nexus 10 tablet, which if anything else is more than a reason to keep the plant online (since Android tablets are making decent headway against iPads). Seeing as Apple was only, what, 5% of Samsung's operating profit, it doesn't sound like a reason to cancel something right after the CES announcement regarding Google's use of the chip.

RoxtarRyan:BullBearMS: RoxtarRyan: Really? Doing a quick search, they just announced 10 days ago they have their 20nm chips just about ready to go for flash memory usage, and another press release 4 days ago saying their 20nm chips are ready to go on SSD and DDR3 units.

You do know that building memory and building CPU's are two different things that happen in two different plants, don't you?

Well then, I still haven't seen anything about them canceling their Exynos chip production plant. If anything else, Google is using Samsung in their Nexus 10 tablet, which if anything else is more than a reason to keep the plant online (since Android tablets are making decent headway against iPads). Seeing as Apple was only, what, 5% of Samsung's operating profit, it doesn't sound like a reason to cancel something right after the CES announcement regarding Google's use of the chip.

Additionally, hell, their SIII outsold the iPhone nearly 2:1 in Q3. Why kill the plant and cease their ability to make more newer tech? I can see maybe moving the production of the plant somewhere else more beneficial to them (still haven't seen anything in regards to that, either), but with Samsung beating Apple this quarter, Google making the Nexus 10 primarily out of Samsung parts, it seems like they are doing more than well enough to not have to kill plans entirely for tech they just announced and have partnerships with.

FTFA: "The move comes less than a month after Sinofsky presided over the launch of Windows 8..."

There's your sign. :)

Well, the Exynos chipsets are the smaller more efficient 20nm size... Even if they could build them in their current plant, fine, ok, but they're still making them though. I wouldn't count them out of the CPU game just yet, especially since the 16BG Nexus 10 is going for $400, a full $100 less than the $500 iPad, has higher resolution and could very well have better battery life.

Regardless, what can/will happen is purely speculation. My bet is that Samsung saw this coming a mile away, and played its cards right to make sure their impact is minimal at best, and will have a quick turnaround from their loss of Apple's contract.

RoxtarRyan:My bet is that Samsung saw this coming a mile away, and played its cards right to make sure their impact is minimal at best, and will have a quick turnaround from their loss of Apple's contract.

My bet is that throwing away a customer who represents about ten percent of your total profit is completely retarded and somebodies head should roll.

Especially when that customer has been buying you the equipment to finance your expansion for some time now.

You do realize it's not in the least bit coincidental that Samsung's CPU fab is in Texas right next to Apple's chip design group, don't you? Who do you think paid for that Fab?

BullBearMS:I should also point out that Intel has publicly said the 14nm fab they are currently building is a Five Billion dollar investment.

There aren't many companies that have that kind of cash laying about available for investment.

Eh, that's old news. The five billion investment was for a new 1.1 million square foot fab. Last week, they announced that they will immediately begin work on doubling the size of the new fab, plus building two more buildings, one 400,000 square feet and another 1 million square foot.

All these guys can screw around for a while over who will make the chips, but ultimately, it will come back to Intel. They were caught napping with the whole mobile device thing, but no one can match their ability to invest until they have blown everyone else out of the water.

Hollie Maea:All these guys can screw around for a while over who will make the chips, but ultimately, it will come back to Intel. They were caught napping with the whole mobile device thing, but no one can match their ability to invest until they have blown everyone else out of the water.

Apple has far more cash than Intel and very recently, they haven't been at all afraid to spend it.

BullBearMS:Hollie Maea: All these guys can screw around for a while over who will make the chips, but ultimately, it will come back to Intel. They were caught napping with the whole mobile device thing, but no one can match their ability to invest until they have blown everyone else out of the water.

Apple has far more cash than Intel and very recently, they haven't been at all afraid to spend it.

Note that Apple's CapEx is above that of Intel whose fab-based semiconductor production method is known as particularly capital intensive. And Intel's Capital Expenditures have been increasing to all-time highs.

If Apple spent at Google levels on server infrastructure it would only be spending a quarter of what it's actually spending. If Apple spent on production at Intel levels it would only be spending three quarters of what it's spending.

In other words, Apple is spending at the equivalent of one Intel of fabrication and one Google of server infrastructure.

[dl.dropbox.com image 526x354]

That article is "old" in that it was written before Intel's new expansion, which is 2.5 times larger than their previous biggest expenditure ever.

BullBearMS:Hollie Maea: All these guys can screw around for a while over who will make the chips, but ultimately, it will come back to Intel. They were caught napping with the whole mobile device thing, but no one can match their ability to invest until they have blown everyone else out of the water.

Apple has far more cash than Intel and very recently, they haven't been at all afraid to spend it.

Note that Apple's CapEx is above that of Intel whose fab-based semiconductor production method is known as particularly capital intensive. And Intel's Capital Expenditures have been increasing to all-time highs.

If Apple spent at Google levels on server infrastructure it would only be spending a quarter of what it's actually spending. If Apple spent on production at Intel levels it would only be spending three quarters of what it's spending.

In other words, Apple is spending at the equivalent of one Intel of fabrication and one Google of server infrastructure.